Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, September 4, 1994 TAG: 9410190004
SECTION: BUSINESS PAGE: F3 EDITION: METRO
SOURCE: STEVEN PEARLSTEIN THE WASHINGTON POST
DATELINE: LENGTH: Medium
Raises in base pay will average slightly more than 4 percent next year, according to annual surveys by the nation's big compensation consultants. If consumer prices begin to move up slightly next year, as most economists predict, most of that raise will be gobbled up by inflation.
``As far as companies can see, its still a buyer's market for labor,'' said Joseph Kilmartin, who heads the compensation practice for the Wyatt Group, a Washington, D.C.-based consulting firm. ``What employers are saying, in effect, is that their people should be happy to have their jobs.''
According to surveys of top executives around the country by Wyatt and other consultants, next year's raises are about what they were this year, despite continued improvement in the economy.
Corporate profits were up a whopping 20 percent last year, according to the Commerce Department's latest calculation, and are expected to climb at least another 10 percent this year.
At the same time, the nation's unemployment rate has dropped from 6.8 percent to 6.1 percent in the past 12 months - usually a sign that labor markets are tightening and that employers would need to boost pay in order to attract and retain employees.
And rising health care costs, which for nearly a decade have siphoned off what money was available for pay increases, are beginning to fall back in line with other corporate expenses.
``Frankly, I was a little surprised by these numbers,'' Darrell Cira, a principal in the Washington office of William M. Mercer Inc., another consulting firm, said of the surveys' findings about next year's raises.
``I was expecting they would finally break out of the 4-percent rut this year. But the reality is that employers are looking around and seeing that their competitors aren't raising wages, and they're not going to raise them, either.''
Experts say several factors are holding down employees' base pay:
Pay no longer is linked to inflation.
Ever since the double-digit inflation of the early 1980s, companies gradually have moved to break employees of the expectation that their pay checks will increase each year at least enough to cover the general inflation rate.
Union wage contracts used to routinely guarantee employees protection from inflation. But the share of workers in private firms covered by union contracts now has dipped to less than 12 percent. And even for unionized employees, those cost-of-living provisions have become so weak that, in many cases, they never come into play.
Employees have become a more docile lot, as least as far as pay is concerned.
``People are shellshocked,'' said Abe Zwany, vice president of the Hay Group in Arlington. ``For years now, they've watched as peers and colleagues and neighbors were let go by what were perceived to be large, stable companies. And it's changed their expectations.''
Zwany said employees, fearful of restructuring at their own companies, are reluctant to agitate for raises. They are not confident enough about the job prospects elsewhere to shop around in large numbers for other opportunities - a traditional signal to employers that they have to raise pay across the board in order to hold down turnover and maintain morale.
Bonuses are replacing permanent raises.
For competitive reasons, companies are reluctant to do anything that adds to their fixed costs, costs that cannot be reduced easily if the economy turns down and sales and prices begin to fall. And for most companies, the biggest single fixed cost is base wages and salaries.
But if the across-the-board pay raise has fallen into disfavor, some experts warn, do not count it out entirely.
In many firms, the threatened defection of a few key employees can trigger a bidding war that eventually ripples through the company's entire pay structure, as colleagues and co-workers demand parity.
And firms that post back-to-back years of record profits may find that they cannot continue to plow profits back into new equipment and higher dividends without suffering a deterioration in worker morale.
``Companies play a risky game when they refuse to share a respectable share of their profits with employees,'' said Wyatt Group's Kilmartin.
``When the economy is improving like it is now, it's probably wiser to stay ahead of the competition in terms of pay. That way a company can avoid playing the kind of catch-up games that can wind up costing them more in terms of money and morale when it's all over.
``Employees are not blind,'' he said, ``and they are not stupid.''
by CNB